Malaysia leads global Islamic finance charge
Islamic Finance News, December 2015:
Upcoming international financial hub to solidify position
As the world’s leading Islamic economy, Malaysia can sustain its dominant position in Shariah-compliant banking through upcoming initiatives such as the Tun Razak Exchange (TRX) financial district.
This can help retain Malaysia’s edge in the “marathon” to create a top Islamic financial center, said Wellian Wiranto, an economist at the Global Treasury department at the Oversea-Chinese Banking Corp Bank in Singapore.
“It’s like you are in the lead in a marathon, and you see others catching up. You run faster,” Wiranto said.
Malaysia has had a “first mover” advantage in Islamic finance through its development of the Islamic Finance infrastructure as well as the human capital skill set and legal workforce critical for the industry.
“A lot of countries are trying to lead in that front. Malaysia’s (current standing) has to do with the infrastructure it already has, and the things the government and central bank did to develop the industry early on,” said Wiranto.
According to the recent report by intelligence provider Thomson Reuters, Malaysia is the world leader in Islamic finance development and the top global Islamic economy.
The ranking measures a country’s level advancement through six indicators: level of governance, transparency, education, finance, corporate social responsibility and overall awareness.
“Malaysia scores very highly on all these indicators. It is currently the world’s leading Islamic economy,” Thomson Reuters Islamic Finance head Mustafa Adil said in November at the 11th World Islamic Economic Forum.
Malaysia also owns more Islamic finance assets than any other country in the world.
Data compiled by ICD-Thomson Reuters Islamic Finance Development Indicator 2014 showed Malaysia’s total Islamic finance assets at the time, including banking, takaful, other IFIs and sukuk totaled US$423.29 billion or 25.53% of the global market.
The Islamic Research and Training Institute(IRTI) projects Malaysia’s Islamic banking assets, which totalled US$141.77 billion at the end of 2013 to reach as high as US$296.29 billion under a base scenario or US$385.51 billion in 2019 under an optimal scenario.
Having the right factors – strong financial institutions, adequate human resources and domestic stability – means that the Government’s upcoming financial district can continue to capitalise on the country’s position and strengthen Malaysia’s existing Islamic Finance infrastructure.
TRX will be “a big plus point” for Malaysia’s Islamic finance industry, said Wiranto.
The financial district is a component of Malaysia’s Economic Transformation Programme (ETP), a national roadmap designed to advance Malaysia’s international competitiveness and double the country’s per capita income.
Expected to be ready in three years’ time, the 70-acre district is targeting local and international financial institutions as its tenants. While not exclusively catering for Islamicfinance, TRX has positioned itself as the newest financial centre in Asia, with a definite bend towards Islamic Finance.
It has announced incentives for both developers and tenants, with a strong focus for spurring Islamic finance industry, to help further catalyse the depth and breadth of the field.
The clustering of financial players, including a significant showing of Islamic Finance institutions, is hoped to increase Malaysia’s profile and create a robust eco-system within the TRX district that will attract further pedigree, and over the longer term, become self-sustaining.
TRX’s upcoming world-class infrastructure, coming together with Malaysia’s solid financial backbone and Islamic Finance expertise, could mean Islamic Finance will have its first proper global hub.
“Shaky and nervous” global financial markets meanIslamic finance will remain major alternative to raise funds in coming years, especially due to its historically low default rate, said Said Shan Saeed, chief economist and investment strategist IQI Group Holdings, an international property and investment company advising clients in Kuala Lumpur, Singapore, Hong Kong, London, Melbourne and Dubai.
Recent geopolitical developments in the Middle East have made the region less stable, deterring prospects for an international financial hub in the Gulf.
Malaysia’s central bank has played a key role in pushing for Islamic finance as an important pillar of its economic strategies. Its Financial Sector Blueprint 2011-2020 includes initiatives that are aimed at developing Malaysia into an international Islamic financial centre.
In addition, the aggressiveness of Malaysia’s banks such as Maybank and Ambank in pushing Islamic finance in the regioncould eventually stave off European institutions and preserve the nation’s leading position.
“Human resources are Malaysia’s biggest advantage,” said Saeed.
“Singapore and London lack the human capital they will need to overtake Malaysia in Islamic finance, and although they could catch up in the next five to ten years, Malaysia will continue to broaden its market share (in Islamic finance), said Saeed.
The Government’s ETP targets 56,000 student enrolment in Islamic finance by 2020.
Malaysia ranks the highest amongst 38 providers for professional development programmes including certification, training, seminars and workshops, according to the Islamic Research and Training Institute’s 2015 Islamic Finance Country Report.
In 2006, Bank Negara launched the International Centre for Education in Islamic Finance (INCEIF), the world’s only dedicated university for Islamic finance.
Three years later, the Securities Commission and the Securities Industry Development Corporation launched the Islamic Capital Market Graduate Training Scheme to create more Islamic capital market professionals.
The measures are paying off. From 2011 to 2013, Malaysia published almost a third of all research papers on Islamic finance, and has the most Shariah scholars in the world, according to IRTI’s Malaysia Islamic Finance Report.
Meanwhile, key and up-to-date regulations such as the Islamic Financial Services Act(IFSA) 2013 are designed to ensure customer protection and financial inclusion, while promoting the concept of risk sharing.
New guidelines for Sustainable and Responsible Investment Sukuk implemented from August 2014 are expected to assist fundraising in the health and green technology sectors.